The Crisis and Socialist Strategy

In the first part of a two-part essay, Ed Rooksby, assesses the economic crisis today and sketches some broad strategic principles for a radical left party in Britain.

It must be clear now to all those with some grip on reality that Osborne’s austerity strategy simply isn’t working. The most recent figures show that UK GDP fell by 0.3% in last quarter of 2012 and that the economy was stagnant for the year as whole (with only a blip of growth driven by the Olympics in in the third quarter preventing overall contraction in 2012). It’s not just in Britain, of course, that austerity has plainly failed. The last quarter of 2012 also saw some of the worst GDP figures for major states in the EU: Italy minus 0.9%, France minus 0.3%, the UK minus 0.3% and even Germany saw its GDP decline by 0.6%. Eurozone GDP contracted for three consecutive quarters in 2012, following 0% growth in the first quarter. The dreadful economic and social consequences of austerity are plain to see in countries like Portugal and Spain – and, at their most extreme, in Greece.

Tragically – though it shouldn’t come as a great surprise – the Labour party leadership seem utterly incapable of offering any sort of opposition to austerity. At best they promise to cut public spending in a slightly less vicious manner than the current government. This isn’t an alternative that’s likely to inspire many people.

Radical left parties committed to fighting austerity have emerged across Europe – in Germany, in France and (most spectacularly) in Greece. We are in desperate need of a similar party in Britain – one which is willing to take the risk of seeking to break the stranglehold of a social democracy that long since capitulated to neoliberalism and present an unashamedly socialist alternative. The emergence of Left Unity is a very exciting step in this direction.

If we are going to try to build a socialist, anti-austerity, anti-neoliberal party we need to be clear about the economic and political context in which this process of construction is to take place and, from this, to extrapolate a set of strategic parameters and principles to guide us. I’d like to contribute to this process in some small way here by putting forward some broad-brush observations about the economic crisis and by making some tentative suggestions in terms of strategic orientation which seem to me to follow from these.

The Crisis
The Tory-Lib Dem government usually claims that the crisis was caused by ‘profligate’ public spending (although how exactly spending on schools and hospitals in the UK precipitated a global crisis is never quite explained) – and, closely bound up with this is the idea that the key pre-requisite of economic recovery is slashing of ‘unsustainable’ public debts and deficits. These claims are nonsense. For one thing, as Reinhart and Rogoff have concluded from a detailed study of 44 countries over 200 years, ‘the relationship between government debt and real GDP growth is weak for debt/GDP ratios below 90% of GDP.’ The UK’s gross public debt at the end of 2007 (i.e. before the financial crisis took hold) stood at less than 50% of GDP – which, incidentally, was far lower than the average across the Eurozone and the OECD and 10% lower than Germany’s public debt/GDP ratio. For another thing, as James Meadway points out, the ‘UK’s most sustained period of economic growth, over the post-war boom, was a period of exceptionally high public debt.’ Both the public debt and deficit shot up after the onset of financial crisis and recession, but the direction of causation is immediately obvious here – the coalition’s claim that sharp rises in public debt and deficit precipitated the crisis is, in fact, to get things back to front.

Whatever else they may be, the coalition leadership is not stupid and the political narrative they have settled on is certainly not simply a misunderstanding on their part – the claim that the crisis stems from fiscal profligacy and that, therefore, the solution is to roll back public spending is a deliberate falsification designed to justify attacks on the public sector and the welfare system. However far from the truth it may be, this narrative has been enormously successful and has now attained a sort of hegemony within popular and media discourse, largely framing the terms of mainstream debate in relation to the recession. Like many such hegemonic ideological strategies, the narrative has an uncomplicated, simple to grasp core message – that the crisis was brought on by the last government ‘spending too much’ – which can be propagated with ease through endless repetition in the Tory press and in political sound-bites. The apparent ease with which the banking crisis was smoothly and seamlessly transmuted, in the popular imagination, into a crisis of public finances bears witness to perhaps one of the most brilliantly effective ideological manoeuvres in recent political history. Unsurprisingly the Labour leadership have more or less capitulated to this narrative and do their best to reproduce it.

Widespread popular acceptance of the notion that public spending somehow caused the crisis helped to prepare the ground for Osborne’s austerity programme. As a political strategy to provide ideological cover for an assault on the public sector, this has so far proved fairly effective. As a strategy for economic recovery, however, austerity is failing miserably and is, in fact, making the economic situation much worse. As Meadway explains, there’s a simple logic to this:

Cuts in government spending shrink demand in the economy. As demand shrinks, firms sell less. Firms that sell less cut wages and make redundancies. Demand falls still further, and a vicious circle of decline is established. Cutting spending to reduce a deficit leads to bigger deficits as unemployment rises and taxes fall. Austerity is self-defeating.

As Meadway also points out, this is the sort of ‘death spiral that helped define the Great Depression’. The austerity mongers of today have simply disregarded one of the biggest lessons of the 1930s which is that governments need to stimulate demand in times of economic crisis, not suffocate it.

A defining feature of the recession today is a major crisis of demand and, intimately bound up with this, a serious deterioration in ‘business confidence’ in future growth prospects. Private sector investment has collapsed – it wasnoted in 2012 that investment by firms was down by about £48 billion from its 2008 peak – but there is no shortage of liquidity or savings in the economy. Indeed, the Financial Times reported last year that ‘companies globally are awash with cash’ and that UK firms, specifically, are sitting on an estimated £750 billion (Lex, ‘UK corporate tax: a missed opportunity’, FT, 12 March 2012). As Burke, Irvin and Weeks amongst others have noted, ‘No sustained recovery can take place without breaking this pattern’ – and since the private sector is unwilling to invest, the public sector must take over this investment function. The situation calls, in other words, for a classically Keynesian stimulus strategy of state driven investment to boost demand and thus, in turn, to boost ‘business confidence’.

Nevertheless it is important for the left to go beyond calls for a Keynesian type stimulus. Keynesian inspired social democratic analyses of the crisis tend to argue that it was brought on by the inherent weaknesses of the particular model of capitalism that has been dominant for the last thirty or so years – neoliberalism – and the process of ‘financialisation’ that has accompanied it. The call, from these quarters, essentially, is for the reining-in of finance capital and for a return to the much more strongly regulated, mixed-economy, model of capitalism that characterised the pre-1970s post-war order. But this does not take adequate account of the deeper, systemic determinants of the crisis. It is also far too optimistic about the capacity of the planet to absorb for much longer a return to high rates of growth in consumption. We need to develop a better grasp of the longer-term and systemic determinants of this crisis and a better appreciation of the limits to further growth which make any attempt to return to ‘business as usual’ on the part of capitalism hugely problematic.

Delving deeper
It must be emphasised that the current global capitalist crisis is, precisely, a crisis of capitalism. That is, it is a systemic crisis. It is not simply a debt crisis. The crisis is rooted in the dysfunctional logic of capitalism and, indeed, this is an extremely serious crisis which is likely to drag on for years.

The current crisis represents the breaking down of a series of temporary solutions to a major crisis of capitalism that emerged in the 1970s. In effect, the international economy has gone full circle and returned, after a few decades of (largely debt-fuelled) growth based on various temporary fixes, to the relative stagnation in which it languished around forty years ago. In order to understand the crisis today, then, we need to examine the development of the global economy over the past few decades.

Robert Brenner has argued that the advanced capitalist economies entered a crisis of profitability at the end of the 1960s. Indeed, according to Brenner, these economies have suffered from relatively low rates of profit ever since. One major reason behind the crisis of profits that emerged in the late 1960s was that firms encountered increasing constraints on opportunities for profitable investment as the post-war boom petered out. The effects of this can be seen in the marked slow-down in rates of growth from the 1970s onwards compared to previous decades (the average rate of annual GDP growth in Western Europe from 1950-73 was 4.79%, while from 1973-03 it averaged 2.19%).

Capitalism responded to this crisis in several ways. It sought to ‘go global’ in order to seek out cheaper pools of labour and to open up new investment opportunities abroad. Under Thatcher and Reagan especially, it launched an assault on trade unions and pushed up unemployment in order to weaken organised labour and drive down wage costs at home. Finance was also, increasingly, deregulated in order to soak up excess capital looking for profitable outlets. Some of the initial solutions, however, soon created further problems for capital. Repression of wages drove down workers’ spending power and thus reduced the rate of effective demand. Capital’s solution to this problem was to extend the credit system and to ramp up debt-fueled consumer spending. This strategy intertwined with wider moves to deregulate finance and with the rapid acceleration of ‘financialisation’. Credit-fueled consumption, together with asset price inflation drove growth for a while. However, this solution, in turn, eventually became the source of serious problems for capitalism because, as David Harvey notes, it ‘ultimately led to working-class over-indebtedness relative to income that in turn led to a crisis of confidence in the quality of debt instruments’. The crisis that emerged in the US ‘sub-prime’ market brought into full view the extent to which major financial institutions had become perilously overextended and, indeed, the extent to which growth had been reliant on ballooning of debt. What we saw, then, from the 1970s onwards was a series of temporary fixes to a deeper structural problem in which each fix raised further problems that had, in turn, to be temporarily solved with further fixes.

It is worth noting that ‘financialisation’ represented a response to very real pressures on profitable accumulation – it was a way of soaking up excess capital given the weakness of profitability in the productive sector. The deregulation of the financial markets and the concomitant extension of credit and debt did not simply represent, as social democratic and Keynesian theorists tend to suggest, an ideologically driven, ‘bad policy choice’ on the part of neoliberals. A solution to the problems we face then, cannot be as simple, as some sort of return to the post-war ‘Keynesian consensus’ in which financial regulation is tightened up and the financial markets put back in the box from which they escaped after the 1970s. The real structural pressures to which ‘financialisation’ was a response are still there and remain unsolved.

We must also take ecological considerations into account. There is an overwhelming consensus amongst climate scientists that the planet cannot absorb the huge amounts of CO2 currently being pumped out into the atmosphere for very much longer without triggering irreversible climate change. Furthermore, human activity since industrialisation has had a hugely damaging effect on the Earth’s biosphere as a result of demand for ever increasing amounts of food, water, mineral resources, fossil fuels, timber and so on – and this destruction is continually accelerating. Massive deforestation, pollution, destruction of entire ecosystems and species extinction are some of the effects. This ecological crisis is largely driven by capitalism’s insatiable need for expansion. The logic of perpetual accumulation for accumulation’s sake compels capitalism to plunder more and more of the planet’s resources, burn greater and greater quantities of fossil fuels and fill the atmosphere with more and more CO2. It is surely clear, however, that infinite growth on a planet with finite resources is a logical absurdity. We are approaching the point at which the planet can no longer support ever increasing rates of consumption – and thus we are approaching the point at which the economic system becomes wholly incompatible with ecological sustainability.

So we’ve seen that the current crisis is the latest (and most serious) of a series of crises that have plagued capitalism since end of the post-war boom and stems from the underlying structural problem of low profitability. We have also seen that financialisation and neoliberalism represented responses to real pressures on profits on the part of capital. Given all of this it is difficult to see how a stable, long-term solution to the current crisis can be found within the confines of the current system except through massive destruction and devaluation of overaccumulated capital (letting unprofitable firms and banks go bust) to restore the rate of profit – but this would be a dangerous strategy which would almost certainly involve an extremely serious slump. Further, we have also seen that the planet is, anyway, unable to support for much longer any return to perpetually accelerating growth in consumption – capitalism is simply incompatible with ecological sustainability.

So while, in the short term, a public spending stimulus is needed to drag the economy out of the immediate crisis of stagnation and to get people back to work we also need to develop plans for massive structural reform of the economy so that we can begin to shift society towards a new economic model which is ecologically sustainable and governed by the priority of satisfying democratically determined human needs rather than by the insatiable and destructive drive for profit.

In the second part of this essay, I’d like to put forward some ideas about the sorts of measures that a radical left party might campaign for and seek to implement as part of this wider strategy.

PART 2

In the second of a two part essay, Ed Rooksby sketches some broad strategic principles for a radical left party.

In the first part of this essay I argued that the current crisis must be seen as a systemic crisis of capitalism which is rooted in an underlying structural problem of low profitability. I also suggested that while a classically ‘Keynesian’ policy of public spending is necessary to drag the economy out of stagnation in the short term – to get people back to work and to reverse the current decline in living standards for ordinary people – this could not work as a longer term solution. This is for two reasons. First, such a strategy would do nothing to tackle the underlying problem of capitalist profitability. What capitalism really needs in order to get back to ‘healthy’ rates of growth is large-scale destruction of overaccumulated capital and, alongside this, further squeezes on wages – in other words it requires a major slump and deterioration in living standards for the majority in order to recover. It is hard to think of a better illustration of the deeply dysfunctional nature of this system. The second reason, as we saw, is that even if it were possible to get back to ‘normal’ rates of growth in some relatively painless way, capitalism’s logic of infinite accumulation and perpetual growth is clearly incompatible with ecological sustainability. The left, then, needs a strategy that combines ‘Keynesian’ measures in the short term but in which those measures are combined with other reforms which generate a transformative socialist dynamic.

The Classic Strategic Dilemma

Of course here we start to encroach on one of the oldest controversies in socialist thought which is the question of whether or not it is possible to reform capitalism out of existence – the classic reform/revolution debate. Let me draw out (in what can’t be anything other than a very simplified way given constraints of space) the core problems with each of these approaches as they are usually conceived in order to provide the foundations for a different way of approaching the question of socialist strategy.

At the heart of the reformist approach is the idea that the process of transition to socialism can be a wholly evolutionary one of smooth, piecemeal change without the necessity for any kind of revolutionary break. The core problem (among others) for this strategy is that when reformists find themselves in power they also find themselves responsible for the management of a capitalist economy. Since radical measures aimed at the introduction of socialism must, by definition, endanger capitalist profit, reformist governments find themselves caught on the horns of an impossible dilemma; they require capitalist cooperation for a process of gradual transition to socialism, and yet the introduction of any measure which might lead very far in the direction of socialism would necessarily lose them the cooperation (and earn them the intense hostility) of capital. So, in opposition to reformism it must be insisted that the transition to socialism cannot be a wholly gradual, cumulative process, but must involve some kind of revolutionary break.

Another key problem with this strategy is that the structure of traditional reformist parties tends to internalise and reflect the top-down structure – active representative minority and passive electorate mass – of capitalist democracy. Reformist parties tend to focus purely on electoral activity and are suspicious if not downright hostile to extra-parliamentary forms of political activity such as strikes and demonstrations. In this way the organisational culture and practice of reformist parties demobilises the mass of people. Since socialist change must necessarily involve the active participation of the majority in the reconstitution of social relations, mass demobilisation has the effect of helping to preserve the status quo.

The revolutionary socialist approach avoids the core problems of reformism but, as it is traditionally conceived, has its own particular deficiencies. Again, I can’t outline all of these here, so will focus on the main difficulty.

In one important sense at least, there is no absolute dividing line between a strategy of reform and traditional revolutionary socialism. Most revolutionaries believe that the struggle for and winning of reforms increases the democratic capacities of the working class, raises its confidence and educates it politically. Furthermore, many revolutionaries (see for example Alex Callinicos’ An Anti-Capitalist Manifesto) appear to believe that socialist revolution is most likely to emerge out of a (frustrated) movement for reform which probes the limits of what the capitalist state is willing to concede and which spills over into something more far-reaching – and so, to this end, the strategy is to seek to place demands on the state which can tip the balance of power in favour of the working class and popular forces. The defining feature of revolutionary socialism as it is usually conceived, however, is the view that socialists must remain strictly independent of the capitalist state rather than seeking to work within it. This, however, is where the strategy runs into a major problem. The first part of this problem is that in countries such as Britain with a long established tradition of liberal parliamentary democracy and, indeed, a long established tradition of reformism in the labour movement, it is very difficult to see how the process of mass radicalisation the revolutionary approach envisages would not find expression in the electoral rise of a party seeking to form a radical government within the capitalist state. That is, it is hard to see this process of radicalisation throwing up anything other than a movement committed to the formation of a ‘workers’ government’. This indeed is the way things appear to be working out in Greece. As Richard Seymour has pointed out it was only after Syriza clearly committed itself to the aim of forming a united government of the left that it became the major radical challenge to austerity in Greece that it is today.

The second part of this problem is that it is also very hard to see how the sort of transitional strategy of reforms revolutionaries want to pressure the state to enact would be implemented by government representatives reluctant to do so, let alone deeply opposed to them politically and ideologically. Some concessions could be wrested from a pro-capitalist government, yes – but a whole series of radical reforms that seriously undermine the power of capital? It seems unlikely. The major difficulty in the traditional revolutionary approach, then, is in its rejection of the very idea of taking power within the political structures of capitalism.

Kagarlitsky – the Dialectic of Change

So neither the traditional reformist approach, nor the traditional revolutionary strategy, seems adequate. We need, instead, a strategy that seeks to combine elements of both. In his book, The Dialectic of Change, the Russian theorist Boris Kagarlitsky seeks to elaborate just such an approach – a strategy for revolutionary change which centres on a process of preparatory reform. Revolutionary transformation, he argues, can only emerge organically and dialectically from a process of radical reform set in motion by a socialist government. He calls this approach ‘revolutionary reformism’.

Kagarlitsky’s argument is based on the premise that ‘Marxism is not an ideology of revolution but a theory of social development’. In Kagarlitsky’s view, Marx sees an organic, dialectical unity between reform and revolution in the process of social change. It is only when one grasps the idea that reform and revolution augment and condition each other that one can start to formulate a realistic strategy of socialist change.

Kagarlitsky suggests that revolution should be ‘conceived as a definite and necessary stage, a qualitative leap, in the process of reform’ – ‘revolution is a “break in gradualness”, a leap in development’. It is a stage of development which is necessary for the consolidation of the changes – new socialist social relations – which can be brought into being (in some embryonic sense at least) within capitalist society through reform.

Clearly, not all reforms intertwine organically with revolutionary change. Kagarlitsky’s favoured strategy of reform is based on a passage from The Communist Manifesto where Marx and Engels write of the implementation of a series of reforms which may:

“appear economically insufficient and untenable, but which, in the course of the movement, outstrip themselves, necessitate further inroads upon the old social order, and are unavoidable as a means of entirely revolutionizing the mode of production.”

Marx and Engels indicate that the introduction of reforms which run counter to the logic of capitalism (and which therefore appear in themselves ‘economically insufficient and untenable’) may set in motion a self-powering dynamic of cumulative change – a kind of chain reaction. That is, these initial reforms destabilise capitalism and therefore necessitate the implementation of further reforms which themselves run counter to capitalist logic and, in turn, require and stimulate further changes and so on. It is in this sense that these reforms ‘outstrip themselves’ – they unleash a process of change which goes much further than the initial effects of the primary reforms themselves. Kagarlitsky believes that the dynamic of cumulative change Marx and Engels sketch out here provides the basis for a strategy of radical reform today.

How could such a process be set in motion? It is the manner in which reforms are implemented which is the crucial factor for Kagarlitsky. Firstly, he suggests that each reform must be designed to stimulate further reforms which will flow from it organically. Each reform must be designed to generate a kind of momentum which drives forward an unfolding series of further changes. This demands that each reform is integrated into a well-planned strategic programme. The movement driving forward these reforms must be careful to regard each reform, primarily, as a means to the desired end of socialism, rather than as an end in itself.

Secondly, Kagarlitsky stresses that these reforms must be driven forward by a movement which unites mass mobilisation ‘from below’ with pressure ‘from above’ as revolutionary reformist politicians work within state institutions. Revolutionary reformists within state institutions must be subjected to constant pressure from below – there must be a mass socialist movement outside these institutions, capable of controlling their representatives and of forcing them on to implement the reforms they have promised. This implies that the mass movement must possess substantial independence from politicians in state office. Furthermore, ‘revolutionary reforms’ must be designed to strengthen and empower this movement. The extension of popular democracy would contribute to the revolutionary reformist dynamic in which each reform ‘outstrips itself’. Socialist representatives are driven on to introduce reforms, which contribute to the deepening of mass democracy which, in turn, encourages the mass movement to put pressure on their leaders for still further changes and so on.

Transitional Programme

What reforms, more concretely, might a transitional programme include? Much would depend on the specific circumstances in which such a programme came onto the immediate political agenda. But a few ideas can be suggested.

A socialist economic strategy might begin in its initial stage with an ambitious programme of directed investment. This spending should be carefully and strategically targeted – investment would be designed to kick-start more sustainable growth, create jobs and to reorient the economy away from its excessive reliance on the financial sector and debt-fuelled consumption toward more productive economic activity. Priority areas for investment should include investment in green, low-carbon infrastructure – particularly in transport and in energy. A major scheme to make existing homes and businesses more energy efficient would also generate considerable employment and help to reduce the national carbon footprint still further. In addition, a publically funded project to build new, affordable and energy efficient houses would create still more jobs.

Further, government policy should include a strategy for the managed downsizing of the financial sector. The authors of the ‘Green New Deal’ have put forward some useful ideas in this respect. They suggest, for example, that tighter controls on lending and credit creation are introduced. This might include the reintroduction of stringent ‘fractional reserve requirements’ on private banks. They propose the forced demerger of large banking and financial groups and (bound up with this) the separation of retail from investment banks. They suggest that all derivative products and other exotic financial instruments should be subjected to strict regulation – only products approved by government would be allowed to be traded. Further, they argue for the imposition of robust capital controls to allow the state to exert control over the national inflow and outflow of capital and thus restore some measure of ‘policy autonomy to democratic government’ in the face of otherwise destabilising international financial movements. Coupled with the channelling of investment – perhaps via a National Investment Bank – into manufacturing production and research and development, measures like these would help to rebalance and restructure the economy away from over-reliance on the financial sector.

Radicalisation of the process of reform might throw up further measures including nationalisation of major banks and financial institutions under democratic control and the bringing into public ownership under democratic control, too, of a string of industrial firms. Taking a large proportion of the financial sector into public ownership would allow financial resources to be allocated according to social and environmental criteria. Similarly, the nationalisation of industrial firms would allow their activities to be oriented increasingly towards socially useful and environmentally sustainable production. Furthermore the bringing into public ownership of much of the heavy manufacturing and engineering sector would help to facilitate the major, coordinated industrial restructuring and research and development investment that would be necessary for the design and construction of a green national energy infrastructure.

Radical forms of collective democratic planning and management could be explored within nationalised firms. Democratic control at the level of the firm would be integrated into a wider, national system of democratic planning. Broad, strategic macro-economic parameters might be decided at the national level – perhaps on the basis of a series of alternative plans drawn up by planning experts which could then be voted on by the population as a whole or by democratically elected national representatives. Within these established overall guidelines the details of the national plan could then be progressively filled out on a decentralised basis – at a regional and local level, and also at an industrial sector and production unit level – on the basis of democratic deliberation, negotiation and majority voting. Of course, democratic planning and control should not be confined to the narrowly ‘economic’ sector. The entirety of the public sector – the education system, welfare system, NHS and so on – should be opened up to collective, democratic and participatory forms of management.

It is worth pointing out that, of course, such a strategy would depend for its success on the existence of friends and allies implementing similar processes of transformation abroad. Certainly a country attempting to go it alone with such a strategy would – at least beyond a certain point – find itself hopelessly isolated in the face of hugely powerful international economic and political forces. But as we’ve seen with the ‘Syriza effect’ currently – the process in which the rise of the radical left in Greece has kick-started moves toward political realignment and fresh thinking on the left elsewhere – the emergence of a radical left government in one part of the world is likely to provide a boost to similar movements elsewhere.

Of course, such a strategy raises its own problems. In particular some would object that it doesn’t really overcome the problems of classical reformism. Such a left government would certainly arouse the intense hostility of capital and would come under huge pressure to reverse its programme from day one. This pressure would only increase as the radical dynamic of any transitional programme gathered momentum – if, indeed, it did. But the argument I developed above is that there doesn’t seem to be any plausible alternative strategic approach. It is hard to see how the left in Europe can avoid the problem of taking power in a left government if it is serious about changing society. Indeed, much of the contemporary left’s thought in relation to strategy often seems to me, precisely, to be an exercise in avoidance – dancing around the question of government power.

All of the above might seem like an idle exercise in building castles in the air. Certainly in Britain we are as far as ever from a political situation in which the elaboration of a transitional programme becomes an immediate concern – though for the left in Greece it is certainly a pressing priority. Nevertheless the process of left realignment in the UK associated with Left Unity does raise broad questions in relation to strategic orientation alongside all the more immediate tactical considerations. Certainly, if Left Unity grows these broader questions will have to be addressed. Further, the on-going deep crisis of capitalism internationally and the processes of political radicalisation this will continue to drive will keep throwing up big questions of strategy that cannot be avoided.